In California, some half a million workers are in for a welcome increase in their paychecks. Fast-food employees in the state will now earn a minimum wage of $20 an hour, a significant jump from the previous rate. This raise translates to a 25% increase for many workers, giving them some much-needed financial relief. However, the new law has raised concerns among local franchisees, who are worried about the impact it will have on their labor costs.
Fast-food jobs have long been known for being among the lowest-paying in the U.S. economy. This wage increase comes at a time when wages have been slowly rising after decades of stagnation. It is important to note that a significant portion of fast-food workers are women, immigrants, and people of color, many of whom live below the poverty line.
One McDonald’s worker, Jaylene Loubett from Los Angeles, points out that living in California, particularly in a city like Los Angeles, is incredibly expensive. On top of that, inflation has led to higher costs for food and bills. While the $20 minimum wage is a helpful boost, Loubett emphasizes that it still falls short in providing a sense of security. She currently shares a one-bedroom apartment with her parents, who have medical issues. Loubett hopes to use her raise to start saving for a bigger home or at least alleviate some of the stress caused by expenses.
It’s worth noting that the minimum wage for jobs outside of the fast-food industry in California remains at $16 an hour, although it is higher in certain cities and counties. Employers paying less than $20 an hour may face increased competition for workers as a result of this wage increase.
However, the higher labor costs are not without consequences. Restaurant chain owners and franchisees in California anticipate having to raise prices, implement more automation, reduce workers’ hours, or even consider closing their businesses. For example, Pizza Hut franchisees laid off hundreds of delivery drivers ahead of the wage hike and transitioned to using delivery apps like Uber Eats and DoorDash, which pass on more delivery fees to customers.
Major chains like Jack in the Box, Starbucks, McDonald’s, and Chipotle have already announced plans to raise prices further. The cost of dining out in the U.S. has steadily increased, even as inflation has remained relatively subdued.
Brian Hom, who operates two franchise locations of Vitality Bowls, expects to raise the prices of smoothies, salads, and other menu items by 5% to 10% to offset the higher wages for his employees. Prior to the wage increase, the minimum wage at his stores was $17.55. While Hom is glad that his employees will be earning more, he expresses concerns about the impact on his business and whether it can be sustained.
Some restaurant owners anticipate that their workers will have fewer hours as a result of the wage increase. Research from a minimum-wage hike in Seattle a decade ago suggests that workers did not lose their jobs but saw a reduction in hours, although they generally earned more overall.
The new wage law in California specifically applies to fast-food chains with at least 60 locations nationwide, with certain exemptions for smaller establishments within grocery stores, airports, and other venues.
Additionally, as part of the new law, a Fast Food Council has been established within the state’s industrial relations department. This council, which includes both restaurant workers and owners, will develop standards, rules, and regulations for the fast-food industry.
California often sets the standard for business decisions that other states later adopt. Advocates hope that the increased pay in the fast-food industry will have a ripple effect, spreading to other sectors within the state and across the country.
In recent years, the push for higher minimum wages has primarily occurred at the local and state levels, as the federal minimum wage has remained at $7.25 an hour.
